5 Habits That Help You Qualify for Business Financing

One of the most important factors lenders look at when you apply for loans, lines of credit, and other business financing is your credit score. Business credit scores are a way for lenders to gauge how likely you are to repay loans and make your payments on time.

These scores aren't set in stone, and they can change from month to month. Keeping an eye on your business credit is a good habit to develop so you're not caught off guard by a credit score change when you're all set to apply for a loan.

The easiest way to monitor business credit is to use a free credit monitoring service, such as NAV or Capital One's Business CreditWise. As you review your credit each month, check to ensure that your account information, including payments, is accurate.

Paying your expenses on time each month, whether that includes loan or business credit card payments or your overhead costs, is one of the best habits you can adopt if you want to qualify for a business loan. Not only can paying on time help boost your business credit score, but it can also help you get into a rhythm with your cash flow, reducing the odds of missing a payment or paying late.

You can take that practice one step further by getting into the habit of paying early each month. Paying early on loans or credit cards could help you trim a little money off what you're paying in interest and finance charges if you're reducing the principal. And you're showing lenders that you're committed to staying on top of your business cash flow.

Similar to how you manage your personal finances, you need a budget for your business finances. Knowing what you have coming in and going out each month is critical for creating accurate forecasts and projections for cash flow and revenues.

If you're not in the habit of tracking your spending yet, it's time to make it a priority. When you have a running tab of your expenses from month to month, it becomes much easier to budget. Not to mention, lenders will want to look at how you're managing your finances every month.

There are two simple ways to track expenses. The first is to open a dedicated business bank account for depositing money and paying bills. The other is opening a business credit card for charging all business-related expenses. The upside of a credit card is that you can track spending while potentially earning some money-saving rewards for your business.

Qualifying for business financing means you can't afford to be out of touch with your business’s financial standing. If you're not checking in with your budget and expenses or updating your financial statements regularly, then it’s easy to lose track of what’s going on financially within your business.

Creating a schedule for auditing your finances can help. For example, you should be checking your business receipts daily to ensure that transactions are recorded properly and there are no accounting discrepancies. Each month, you'll want to review your budget and run various financial statements, such as an updated cash flow statement and a profit and loss statement.

You'll want to check in with your business tax obligations at least quarterly and review your financial goals every six months or so. When you're attuned to what's happening with your financials, it becomes easier to identify areas you might need to work on to make your business a more attractive candidate for financing.

Starting any new habit can take some time to get used to, and you can make it easier by automating as much as possible. For example, creating a bill payment schedule and automating those payments can help you get into the habit of paying early. Automating your accounting processes can make forecasting and reviewing your business finances less tedious.

Making your new habits as automatic as possible can help you increase the odds of a loan approval if you plan on borrowing in the future, and it will also help you build a strong business credit profile. At the same time, it leaves you free to focus on those important daily tasks that keep your business running smoothly.